Fitch keeps PNB rating

MANILA, Philippines - Fitch Ratings affirmed yesterday the speculative credit rating of Philippine National Bank (PNB) amid its weaker asset quality and profitability.

The credit rating agency reaffirmed the ‘BB’ long-term issuer default rating on a stable outlook for PNB driven by its viability rating.

“The ratings reflect the bank’s weaker asset quality and profitability compared with its local peers, which are partly mitigated by the bank’s higher capital ratios and a stable to improving operating environment,” Fitch said.

‘BB’ ratings indicate an elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions over time.

The debt watcher said the ratings also take into account PNB’s franchise as the fifth-largest bank in the Philippines by assets, after its merger with Allied Banking Corp. in February 2013.

“PNB’s asset-quality metrics – despite having improved under generally stable domestic economic conditions – remain weaker compared with Fitch-rated peers,” it added.

Fitch cited PNB’s non-performing loan (NPL) ratio of 2.75 percent at end-June 2015 and its NPL reserve coverage of 59 percent at end-2014.

It explained PNB’s bad loan ratio highlight higher provisioning, earnings and capital impairment risks relative to peers.

The credit rating agency also took note of the high loan concentration to large borrowers.

“In addition, the bank’s loan concentration to large borrowers is high, which is typical for Philippine banks, but this exposes the bank to lumpy credit losses in the event of a downturn,” it added.

Fitch said PNB’s profitability has also been weighed down by historically higher impairment charges and cost-to-income ratio that stood at 61.8 percent relative to peers.

“Weaker profitability is likely to continue to hinder sufficient internal capital generation to support loan expansion. This may improve should the bank successfully extract cost and revenue synergies from its merger with Allied Bank, although progress thus far has been slow,” it said.

PNB’s capital ratios remain higher with its common equity tier 1 (CET1) ratio of 16.6 percent in end-June compared to other Fitch-rated peers and provide a satisfactory buffer against potentially higher credit costs.